The stock market extended its gains from last week and now has positive returns for the year. Interest rates continued to gradually rise, extending the selloff that began in early February. Geopolitical tensions have eased during the last week, with optimistic news on the Greek bailout negotiations and the announced cease fire in Ukraine aiding the rebound in risk markets. Despite the recent improvement, the market remains very choppy and sensitive to world news events.
The week ahead will shed more light on the thinking of the Federal Reserve, as the minutes from the January meeting will be released on Wednesday. The minutes should provide more details on the strength of the employment market as well as when the Fed may raise interest rates. We expect the minutes to reaffirm the Fed's current thinking that the economy continues to improve and that a tightening labor market will lead to wage growth and inflation. The market will likely accelerate its expectation for an interest rate increase after the minutes are released. We expect the front end of the yield curve to react negatively to the minutes.
Despite the recent improvement in the equity market, we continue to believe that stocks will end the year with the S&P 500 at 1950, due to weakening corporate earnings and the eventual tightening of monetary policy.
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